Block Management, Facilities Management, Commercial & Residental, Small blocks service
Ringley’s top 10 property management tips:
Most leases require a leaseholder to obtain consent before making any alterations to a property. Consent is granted by a document known as a 'Licence to Alter'.
NEVER assume timber walls are not structural, once we had to stabilise floors in a 1980’s timber framed building after an unsuspecting owner removed the wall between the kitchen and living room.
Your proposed works will be an alteration IF the answer is YES to any of these questions
Will your works:
- affect any face of the building (window/door/skylight etc..)?
- cut through any wall?
- remove any part of any wall (internal, external or partition wall)?
- increase the amount of waste water/sewerage? (E.g. new kitchen, bathroom, toilet, show etc.)
- modify a communal service? (E.g. remove a radiator on a communal heating system, re-route a communal waste pipe.)
Most leases have a covenant requiring the owner to register any sub-let, and/or seek landlord’s consent to rent out their property. The cost of complying with the sub-letting clause and registering tenancies is an administration charge under Schedule 11 of the 2002 Act.
3. Consultation & raising money for big works
The 1985 Act requires landlords to consult service charge payers when ‘qualifying works’ exceed £250. And, if they don’t, recovery is limited to £250 per payee.
The Daejan case in 2013 gave some relief as it widened the scope for a landlord to claim a retrospective dispensation where a consultation process was absent or flawed.
4. Forfeiture, leaseholders are protected until a breach is proven
Forfeiture is the name given to the process whereby a landlord seeks to bring a lease to an end and take back possession of a property, effectively dispossessing the lessee.
Since February 2004 a Freeholder can only take forfeiture action if the breach is confirmed by way of a Court or Tribunal judgement. And, for ground rent arrears, the arrears must be more than £350. This is why mortgage companies often will not pay up service charge arrears as their security is now safer than it used to be.
5. Demands: an invalid demand may mean the money is not due
Sharing the bills informally is great until a leaseholder argues what they paid is not legally due. There are many service charge and ground rent demand pitfalls, forgetting to serve the correct prescribed notes is just one.
6. Buying the freehold? Use an existing management company, (if you can)
If all owners want to buy the freehold, and you already have a management company written into your lease, you will save money if you use it as the new Freehold owning company.
Doing so will save you having to prepare 2 sets of company accounts, 2 Directors & Officers insurance policies, having to file 2 Confirmation Statements with Companies House, appointing 2 company secretaries, and, using an existing management company means you won’t need to levy members contributions on the freehold members to fund the the costs of running a separate freehold company).
7. Don’t put up with a defective lease
The most common lease omissions or defects are:
- can’t budget and collect service charges in advance,
- can’t recover the cost of a managing agents fees,
- the lease requires expensive 'audited' accounts when 'certified' accounts would do
- each flat has to get their own buildings insurance,
- despite being required by law to produce service charge accounts (applies to 5 or more flats) the accountant fee is not recoverable,
- the lease is silent on who owns and decorates the windows,
- the lease requires the leaseholder to decorate the windows (5 stories up),
- no deterrent to late payment, i.e., you cannot charge interest on arrears,
- lease percentages don’t add up to 100%,
- maintenance of physical plant on site is not described as recoverable service charge, i.e., lift maintenance or expenditure,
- a schedule is omitted from the lease, i.e., parties that should contribute, are not required to.
Section 37 of the 1987 Act sets down procedures whereby the Tribunal can vary a defective lease, and you don’t need 100% agreement but you will need
- 9+ flats – 75% agreement, and not more than 10% opposing,
- 8 or less flats – the agreement of 7 flats.
Applications can usually be considered by written track (no hearing) so are not too costly.
11 leaseholders now save circa £1,654 a year every year since Ringley did a Section 37 lease variation.
read audit clause case study >
4 leaseholders whose lease required an ‘audit’ of the service charge accounts costing circa £2,500+ us service charge accounts at £350+ now we save £2150 per year following a Section 37 lease variation
read audit clause case study >
8. Consider the terms of a lease extension and how to distribute the cash
Since 1993 thousands of leaseholders have exercised their legal right to a statutory lease extension which means:
- an additional 90 years,
- the ground rent reduced to a peppercorn (effectively nil).
After a freehold purchase the shareholders will need to decide the strategy for the future lease extensions. i.e: should you sell:
- statutory lease extensions,
- lease extensions + a share in the freehold company,
- top up lease extensions (top up to 99 or 125 years) with a modern ground rent for a slightly lower premium,
Also worth considering is: how to split the proceeds of future lease extensions i.e; perhaps just to the original freehold purchase participants.
In principle selling a share in the freehold company, should attract a premium over and above the lease extension cost, and IF the lessee does not need an additional 90 years, why not sell the extra years they need and set a modern ground rent to preserve your income and maintain the value of the freehold.
To find out more about lease extensions >>step by step guide to lease extensions
9. Consider charging a premium for granting consent to make alterations
For alterations to a kitchen or bathroom, or remodelling walls it is not normal, and probably not reasonable, to seek a premium for granting consent. In fact many leases require that such consent is not to be unreasonably withheld.
However, when alterations increase the size of a property, change the use or change the external aesthetic appearance, you should consider sharing the added value the consent brings by charging a premium, or a share of what is called ‘marriage value’.
‘Marriage value’ exists when interests or assets are combined to create a new interest or asset that which has a higher value than the sum of the each individually.
Examples of alterations for which it could be reasonable to charge a premium may include:
- conversion of a live work unit or office to residential dwelling,
- turning an attic into an extra bedroom,
- creating a roof terrace on a roof,
- changing a window to the door giving direct garden access,
- creating a swimming pool in a garden,
- fencing off a part of a communal garden,
in these situations the consent will enhance the value of the leaseholder’s interest and a Chartered Valuation Surveyor should be employed to assess the premium that should be paid.
10. Fed up with legal paperwork? Simplify, simplify, simplify!
Corporation tax self assessment – write to your local tax office seeking an exemption from corporation tax returns, they will usually grant a 3 year exemption.
Full trading company accounts – stop trading if you can thereby reducing the cost and detail of the accounts you need to file. If you have traded in the past, e.g., bought the freehold, if the company can become dormant you can reduce to abbreviated accounts. If your company does not have any assets and has not traded during the accounting year, you can file dormant company accounts (essentially just a balance sheet).
To become dormant you will need to
- Stop receiving income (pass a resolution to stop collecting ground rent),
- Hold money outside the company, ie, in an Agent’s Client account so you do not have a trading bank account,
- Not have bought or sold any assets during the year.
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